This will be short and sweet. I’m sure you are all waiting for me to wax lyrical on the increase to the Fonterra payout last week but when I read back over my blogs of the past year it turns out that I have already said it all.
Back in May last year I poured cold water on the prospect of a NZ payout in excess of $7 / kg MS. It also seemed at the time that Sir Henry was going over the top with suggestions that this could be as high as $8 / kg MS.
I have been back pedalling ever since. Most recently the value of forward hedging of foreign exchange contracts was discussed in a bit of detail.
Through all this Fonterra has been just pushing their forecast higher - culminating last week in the milk price forecast of $7.50 / kg MS with an additional dividend of $0.25 - $0.30 / kg MS.
The subeditor used the term “gobsmacked” in our news article last week. That’s pretty much right but pales in comparison to what Fonterra’s processor competitors in New Zealand must be feeling.
So just to keep the dataphiles happy, here is a chart that shows our estimate of the effect of NZ / US exchange rate on the 10/11 dairy commodity market. This provides something of a guide to how a variation in the currency and Fonterra hedge rate might affect their 10/11 farmer payout.
… and just in case you were wondering, the average NZ exchange rate of the past 12 months has been US 73 cents, and the last time the rate was at US 60 cents was May 2009. I’ll leave the final comment to Dave but Sir Henry, Andrew and their New Zealand farmer shareholders may well have the last laugh.
